1. Both these appeals arise out of the original petition No. 67 of 1957 on the file of the District Court of East Godavari at Rajahmundry. The claimant Penumatcha Subhadrayyamma has preferred Appeal No. 133 of 1959 under Section 54 of the Land Acquisition Act claiming enhancement of compensation. Appeal No. 201 of 1959 was filed by the Revenue Divisional Officer, Rajahmundry against the same award contending that the amount of compensation wan wrongly enhanced by the District Judge, East Godavari at Rajahmundry. The main question that arises for decision in both the appeals is as to the amount of compensation to be awarded to the claimant in respect of the property acquired.
2. The property acquired consists of 4 acresand 40542 square feet in extent along with the buildings thereon in the town of Rajahmundry. Theplinth area of the buildings acquired is 28,048square feet The Revenue Divisional Officer, Rajahmundry who is the Land Acquisition Officer, valued the land and the buildings separately. He fixed the market value of the land at Rs. 9871-7-0. So far as the buildings were concerned, he fixed the value at Rs. 80,138-9-0. The Additional District Judge of Rajahmundry, on a reference under Section 18 of the Land Acquisition Act, awarded a total compensation of Rs. 1,80,000/- for the land and buildings together. Both the parties being aggrieved by the decision have preferred the appeals to this court.
3. The main question that arises for consideration in the appeals is as to what is the proper amount of compensation payable to the claimant under Section 23 of the Land Acquisition Act, hereinafter referred to as the Act. Section 23 of the Act enacts that in determining the amount of compensation to be awarded for land acquired under the Act, the court shall take into consideration firstly the market value of the land at the date of the publication of the notification under Section 4, Sub-section (1). Clauses 2 to 6 set out the further considerations to be taken into account in awarding compensation. Section 24 provides that the matters mentioned therein ought not to be taken into consideration in awarding compensation.
4. Dealing with the scope and effect of Section 23 of the Act, Lord Romer held in V. Naraana Gajapathiraju v. Revenue Divisional Officer, Vizagapatnam, ILR (1939) Mad 532 : (AIR 1939 PC 98) that the compensation might be determined by a reference to the price which a willing vendor might reasonably expect to obtain from a willing purchaser. The learned Law Lord added as follows :
'The disinclination of the vendor to part with his land and the urgent necessity of the purchaser to buy must alike be disregarded. Neither must be considered as acting under compulsion. This is implied in the common saying that the value of the land is not to be estimated at its value to the purchaser. But this does not mean that the fact that some particular purchaser might desire the land more than others is to be disregarded.'
Dealing with the expression 'market-value' in Section 23 of the Act, Lord Romer observed as follows :
'There is not in general any market for land in the sense in which one speaks of a market for shares or a market for sugar or any like commodity. The value of any such article at any particular time can readily be ascertained by the prices being obtained for similar articles in the market. In the case of land, its value in general can also be measured by a consideration of the prices that have been obtained in the past for land of similar quality and in similar positions, and this is what must be meant in general by 'the market-value' in Section 23. But sometimes it happens that the land to be valued possesses some unusual, and it may be, unique features, as regards its position or its potentialities. In such a case the arbitrator in determining its value will have, no market-value to guide him, and he will have to ascertain, as best as he may from the materials before him, what a willing vendor might reasonably expect to obtain from a willing purchaser for the land in that particular position and with those particular potentialities. For it has been established by numerous authorities that the land is not to be valued merely by reference to the use to which it is being put at the timeat which its value has to be determined (that time under the Indian Act being the date of notification under Section 4(1)), but also by reference to the uses to which it is reasonably capable of being put in the future.'
5. The notification under Section 4(1) of the Act was made on 16-8-1956 and the notification under Section 6 was made on 11-10-1956. According to the learned Govt. Pleader, the market value of the property acquired must be fixed with reference to the purchase money paid by the claimant on 15-11-1954 under Exhibit B.1. The second contention is that the site and the buildings should be separately valued and the market value of the properties acquired should be arrived at by adding the value of the site plus the value of the buildings in accordance with the contractor's method, otherwise known as the principle of fixing the value by ascertaining the cost of reproducing the building at the present time and then allowing for depreciation as laid down by Lord Macmillan in Hari Chand v. Secy. of State, AIR 1939 PC 235. The learned Government Pleader contended that the District Judge erred in fixing the value of the godowns covered by buildings 3, 5, 6 and 7 on the basis of rental value.
Sri A. Gangadhararao, the learned Advocate for claimant, contended that the learned District Judge was perfectly justified in capitalising the rent but he pointed out that the learned District Judge erred in capitalising the rental at 16-2/3 times. He relied on the decisions of the Madras High Court as well as this court for contending that the rental should be capitalised by taking into account the ruling rate of interest paid on the gilt-edged securities at the time of the notification under Section 4(1). He also contended that the learned District Judge erred in arbitrarily fixing the value of the buildings 1, 2, 4, 8 and 9 at a lump sum of Rs. 15,000/-. He urged that the learned District Judge ought to have taken into account the value of the site in fixing the compensation. For the purpose of appreciating the relative contentions of the parties it is necessary to set out the relevant facts.
6. Before doing so, we might refer to a recent decision of the Supreme Court in Special Land Acquisition Officer v. T. Adinarayana Setty, : AIR1959SC429 . S.K. Das J. delivering the judgment of the Supreme Court pointed out the methods of valuation that might be adopted in fixing the market value of the land. The observations are as follows:
'It is not disputed that the function of the court in awarding compensation under the Act is to ascertain the market value of the land at the date of the notification under Section 4(1) and the methods of valuation may be (1) opinion of experts, (2) the price paid within a reasonable time in bona fide transactions of purchase of the lands acquired or the lands adjacent to the lands acquired and possessing similar advantages and (3) a number of years purchase of the actual or immediately prospective profits of the lands acquired.'
7. The property purchased by the claimant under Exhibit B-1 originally belonged to the East Coast Ceramic Industries Limited, Rajahmundry. The buildings standing on the land are : (1) electric shed; (2) office building; (3) nine godowns, (4) outshed; (5) kiln, and (6) latrines. The electric shed and the office are terraced buildings. So far as the six godowns and the outshed are concerned, the roof consists of corrugated zinc sheets. As regards the other three godowns, the roofing consists of Mangalore tiles. As regards the kiln, the Land Acquisition Officer observed in the award as follows :
'The buildings consist of one kiln, the superstructure, the doors and windows and connecting machinery etc. walls of which have been removed......'
The learned District Judge, who inspected the premises, observed in paragraph 7 of the judgment that there was no roof over the kiln. These buildings are now acquired for the establishment of a factory for the manufacture of stoneware pipes by the Industries Department.
The Tahsildar of Rajahmundry was directed to make enquiries for the purpose of fixing the valuation of the property. Under Exhibit A-120 dated 30-1-1956, the Tahsildar informed the Collector that the old Ceramic buildings were constructed 25 years ago. He stated that the Municipality had fixed the annual rental value at Rs. 13857/- in 1953 and that capitalising the value of the buildings at 16-2/3 times, the total cost of the buildings would work out to Rs. 2,30,905/-. He pointed out that as the present state of buildings was not the same as it was at the time of fixing the annual rental value and the lime kilns were recently dismantled, the buildings might be valued at Rs. 1,20,000/-. He also referred to the valuation fixed by the Executive Engineer at Rs. 1,01,000/-.
The next document to be referred to is Exhibit A-123. This is a letter addressed by the Tahsildar to the Collector East Godavari, Kakinada on 4-2-1956. He states in that letter as follows:
'The valuation of the buildings and the site were adopted by the Municipality prior to 1949 according to the figures furnished by the old East Coast Ceramic Co., which was then Rs. 2.34,700/-. There was revision in the rental value in 1953 and according to it the valuation is Rs. 2,30,905/-.'
He enclosed along with the letter a working sheet regarding the value of the site and the building on the rental basis prepared in consultation with the Revenue Officer, Rajahmundry Municipality.
According to this letter, the annual rental value of the site as per the municipal record since 1953-54 is Rs. 130/-. The annual rental value of the buildings as per the municipal records since 1953-54 is Rs. 15,252-0-0. Deducting 10% for depreciation on the buildings the annual rental value of the site and the buildings is mentioned therein as Rs. 13857/-. Capitalising it at 16-2/3 times, the value of the site and the buildings is mentioned as Rs. 2,30,950/-. The half yearly tax payable in respect of these buildings was Rs. 1707-4-3. The property tax demand register is marked as Exhibit A-116. It shows that the annual value of the building for 1953-54 was fixed at Rs. 14,085/-and for the year 1956-57 at Rs. 14,400/-. The property tax payable for 1953-54 was fixed at Rs. 1707-4-3 and for the year 1956-57 it was fixed at Rs. 1774-2-9. Apart from these documents, the balance sheet of the East Coast Ceramic Industries Ltd. for the period ending 31-12-1953 is marked as Exhibit A-1. According to the balance sheet, the values of the property and assets are mentioned as follows :
Land and buildings (at cost) as per last Balance Sheet. Rs. 36,352-5-4.Sheds : at cost as per the last balancesheet. 63,314-8-9.Kiln (at cost) as per last balance sheet. 1,62, 812-0-1.Less materials sold during the year. 4,300-0-0.1,68,512-0-1. Experimental Kiln (at cost) as per lastBalance sheet. 1,439-11-3.
8. The East Coast Ceramic Industries Limited went into liquidation. Sri K.S. Prakasa Rao (C. W. 2) was appointed as the Liquidator. The land and the buildings were put up for auction on 15-11-1954. The upset price was fixed originally at Rs. 1,08,000/-. It was ultimately reduced to Rs. 50,000/-. M. Satyanarayana Raju offered a bid for Rs. 50,100/-. M.V. Rayaparaju on behalf of the claimant offered a bid for Rs. 50,200/-. It was knocked down in his favour on her behalf. According to the terms of the auction, she had to pay the arrears of property tax amounting to Rs. 2700/-. After the claimant purchased the property, according to her case, she effected repairs to the extent of Rs. 30,000/- as the property was affected by the floods caused by Godavari river in the year 1953. As the buildings abut the Rajahmundry railway station, she obtained sanction for a railway siding by depositing Rs. 2500/-. She leased out the nine godowns on a rent of Rs. 1200/-per month for a period of about a year from February 1955.
Exhibit A-39 shows that the nine godowns were taken on rent by the Government of India, Ministry of Food and Agriculture, for a rent of Rs. 1200/- per month. Exhibit A-40 dated 19-8-1958 is a letter addressed by the Godown Superintendent, Central Storage, Rajahmundry to the Deputy Director (Movements), Vijayavada. He submitted four rent bills for the months of April to July at the rate of Rs. 1200/-. He pointed out that the bills for the month of February and March were returned to the owner for submitting the revised bill.
9. On behalf of the claimant 5 witnesses were examined. (After discussing the evidence in para 9 the judgment proceeds):
10. We shall first take up the contention of the learned Government Pleader that the claimant is not entitled to be paid more than Rs. 50,200/- for which she purchased the properties acquired. It is of interest to note that even the Land Acquisition Officer in his award did not hold that the price paid under Exhibit B.1 is the proper market value of the land and the buildings. He awarded as stated supra Rs. 90,000 by separately valuing the site and the buildings. Neither the Tahsildar nor the Collector, who held the enquiries in regard to the value of the property, rested their recommendations on the price paid by the claimant. What has to be determined is really the market value of the property as on the date of the notification under Section 4(1) of the Act. The purchase was not, as pointed out by Lord Romer, between a willing buyer and a willing seller.
11. The East Coast Ceramic Industries Ltd. having gone into liquidation, the properties were put up for auction, and they were sold for discharging a mortgage debt due on the properties. There were arrears of tax amounting to Rs. 2700/-. As the result of the floods of river Godavari, the properties were also damaged to some extent. Though the Advocate liquidator examined on behalf of the claimant stated that there was good advertisement before the sale and that the sale fetched the highest price that he would get under the circumstances, we are inclined in think that the property was purchased by the claimant who is no other than the paternal uncle's daughter of C.W. 5, one of the Directors of the East Coast Ceramic Co., for a very low price. Even according to the balance sheet prepared by the Company and marked as Exhibit A-1, the property was worth more than two lakhs. The municipal valuation of the properties also shows that the properties were valued by the company itself as being more than two lakhs and a half-yearly tax of over Rs. 1700/- was being levied. We agree with the learned District Judge that the amount for which the claimant purchased the property should not be regarded, as the market value of the properties as on the date on the notification under Section 4(1) of the Act.
12. In support of his contention that the price paid by the claimant should be taken as the market value of the property acquired; Sri N.V.B. Sankara Rao, the learned Government Pleader, relied on the decision of the Bombay High Court in Frenchman v. Asst. Collector, Haveli, AIR 1922 Bom 399. Referring to the purchase made by the claimant, the learned fudges held that there could be no doubt that that was a purchase by a willing purchaser from a willing seller and that it. consequently afforded the best evidence of the market value of the property acquired. The learned Judges, rightly pointed out that if the claimant wished to show that the property was worth more than what he paid for it, he had to produce evidence to that effect. It was also laid down that it would be open to the Government to show that the claimant, when he purchased the property
'had taken a far too sanguine a view of its possibilities in the future'.
In Govt. of Bombay v. Ismail Ahmed, AIR 1924 Bom 362, Mullah, J. followed the decision in AIR 1922 Bom 399 and laid down the proposition that where the property under acquisition has been recently purchased, the price paid is prima facie the market value thereof. To the same effect are the decisions of the Allahabad and Calcutta High Courts in Qamar Ali v. Collector of Bareilly, 23 Ind Cas 542 (2) at p. 543, Col. 2 : (AIR 1914 All 66 at p. 67 Col. 2) and Amrita Lal Basack v. Secy. of State, 22 Ind Cas 78 (Cal) at p 84, Col 2. The legal position is well summed up by Mr. Nichols in his treatise on Eminent Domain, third edition, volume 4, at page 53 in the following terms:
'When a parcel of land is taken by eminent domain, the price which the owner paid for it when he acquired it is one of the most important pieces of evidence in determining its present value, provided the sale was recent, and was a voluntary transaction between the parties each of whom was capable and desirous of protecting his own interests, and no change in conditions or marked fluctuation in values has occurred since the sale, A price paid under such conditions is a circumstance which a prospective purchaser would seriously consider in determining what he himself should pay for the properly.'
13. Sri A. Gangadhararao, the learned Advocate for the claimant, does not dispute this position, but he urges that on the facts of this particular case it should he held that the price for which the claimant purchased the property docs not represent the true market value of the property. For the reasons stated supra, we hold that Exhibit B-1 does not represent the true market value of the property acquired. He was purchased by the claimant, who is a close relation of one of the Directors for a grossly inadequate sum at an auction held by a liquidator of the company in voluntary liquidation.
14. We shall next deal with the contention of the learned Government Pleader that the document relating to municipal valuation ought, not to be taken into consideration in awarding compensation under the provisions of the Land Acquisition Act. He invited our attention to passages in Mr. Alfred D. Jahr on Eminent Domain, Valuation and Procedure, 1953 edition, at page 235 and Mr. Orgel on Valuation under Eminent Domain, Second Edition, Volume I, at page 629. The learned authors point out that in the States the municipal valuation is not regarded as furnishing criterion as to the market value of the properties. A careful perusal of those text books reveals that the assessed values are based more on ability to pay than the property value. It is pointed out that urban properties carry the heavier load and the farm properties are generally and notoriously undervalued and underassessed. The learned authors say that the valuation is purely for the purpose of raising tax revenue and has as its base a fair apportionment of the cost of government. The assessed valuations are further more determined ex parte by non-judicial officers who do not possess any special qualifications for fixing the market value. Those considerations do not apply to the municipal valuation viz., the fixing of property tax in our country.
15. The Madras District Municipalities Act (V of 1920) contains a special provision as to how the property tax is to be fixed. Section 82(1) enacts that every building shall be assessed together with its site and other adjacent premises occupied as an appurtenance thereto unless the owner of the building is a different person from the owner of such site or premises. Sub-section (2) is relevant for the purpose of this case. It enacts that the annual value of the lands and buildings shall be deemed to be the gross annual rent at which they may reasonably be expected to let from month to month or from year to year, less a deduction, in the case of buildings, of ten per cent, of that portion of such annual rent. The proviso states that in the case of any Government or railway building or any building of a class not ordinarily let, the gross annual rent of which cannot, in the opinion of the executive authority, be estimated, the annual value of the premises shall be deemed to be six per cent, of the total of the estimated value of the land and the estimated present cost of erecting the building after deducting for depreciation a reasonable amount which shall in no case be less than ten per centum of such cost.
The Tahsildar, in his communication to the Collector regarding the value of the old Ceramic buildings stated that the annual value was fixed prior to 1949 according to the figures furnished by the old East Coast Ceramic Company. It was on the basis of the figures furnished by the Company that the annual value was fixed. The balance sheet (Exhibit A-1) also supports the valuation adopted by the Municipality for fixing the annual value. It was not on the basis of any hypothetical rent that the buildings might fetch that the annual value was fixed. The value of the buildings as entered in the accounts, of the company and as furnished by them was taken into account for determining the annual valuation and fixing the house tax.
If really the buildings were not worth over Rs. 2,00,000/- the company would not have paid the house tax of Rs. 1700/- and odd for each half year. There can be no doubt that the buildings were certainly worth more than Rs. 2 lakhs before the company went into liquidation, and that the purchase made by the claimant was for a grossly low sum. We therefore repel the contention of the learned Government Pleader that the municipal valuation cannot be taken into account in determining the market value of the property. Though it is not conclusive, it has great evidentiary value in the absence of other evidence. Vide Tulshi Makhania v. Secy. of State for Indian in Council, 14 Cal WN 80.
16. The next question that arises for consideration is whether the site and the buildings should be separately valued as was done by the Land Acquisition Officer. The fallacy of valuing land and building separately and taking the total as the value of both is forcibly pointed out by Macleod, J. in In re. Dhanjibhoy Bomanji, 10 Bom LR 701. The learned Judge pointed out that it does not follow that if a man spends Rs. X on land and Rs. Y. on the building, he produced a property worth X plus Y. According to him the property must be valued on the basis of its worth in the market and not by what it costs. To the same effect are the observations of a Division Bench of the Bombay High Court reported in the same volume at page 907, Govt. of Bombay v. Merwanji Muncherji Cama, 10 Bom LR 907 at p. 912.
'Land is a marketable commodity of one description, and land with buildings on it is a marketable commodity of another and a different description; and there is no known process by which from the ascertained value of land plus buildings as an investment, it is possible to deduce the value of the 'land' alone.'
The expression 'land' underlined (here in ' ') appears to be a mistake for 'acquired property'. The observations of the learned Judges of the Madras High Court in Rathnamasari v. Collector of Salem, AIR 1923 Mad 332 at p. 334 are also to the same effect. The learned Judges pointed out that a plot consisting of a house and a garden is much more satisfactorily valued by capitalising the rental in the absence of other evidence which would give a more satisfactory value. They further pointed out that the site and the buildings should not be separately valued and the two added together to get the total market value of the acquired property. But there might be cases in which the rental value does not afford a true criterion of the value of the property when the house is situated in an extensive compound.
In Appeals Nos. 46 and 48 of 1950 and C. R. P. No. 754 and 755 of 1950, D/- 12-1-1955, 1955 Mad WN 36, the learned Judges held that where the subject-matter of acquisition was land of an extent of 6 acres and 37 cents situated in the heart of the residential area of the municipality together with a bungalow, garage and out-houses (which occupied about 27 cents), the proper method of valuing the property should be to treat the property as vacant land and then value separately the building materials on it. The valuation of the property i.e., the building and vacant site must depend upon the particular facts and circumstances of each case.
17. So far as the site is concerned, the Land Acquisition Officer fixed the value of one acre of land at Rs. 2,000/-. He based his decision on the sale effected by the claimant of a portion of the property purchased by her under Exhibit B-1. The Land Acquisition Officer referred to the sale deed. He stated that one acre and 64 cents were sold on 14-3-1956 for a sum of Rs. 3000/-. No objection was raised by the claimant that the sale on 14-3-1956 was of a lesser extent. Sri Gangadhara Rao, the learned Advocate for the claimant, contended that she could not have sold more than 63 cents under that document as under Exhibit B-1 she purchased 5 acres and 56 cents and the Revenue Divisional Officer has acquired under these proceedings 4-93 acres. There is no doubt considerable force in this contention. But inasmuch as the claimant did not dispute the statement made by the Revenue Divisional Officer and the sale deed is not before us we accept the statement of the Revenue Divisional Officer as being correct. Sri Gangadhara Rao requested us to call for a finding in regard to the value of the site. In support of this contention he relied on Exhibits A-20 to A-23, which were filed into Court but which according to him were not proved by the mistake of his claimant. We are not inclined to accede to this request.
18. Sri N.V.B. Sankara Rao, the learned Government Pleader, next contended that the value of the buildings most be determined according to the contractor's method. He invited our attention to the decision of the Privy Council in AIR 1939 PC 235. An analysis of the facts clearly shows that the site was situated in a cantonment belonging to the Government. What had to be determined in the case was the value of the buildings erected on the cantonment site. Lord Macmillan pointed out that the subject-matter of valuation or compensation being the buildings and not the site, the contractor's method was the proper method to be adopted. The learned Law Lord pointed out that the rental basis ought not to have been adopted and that the contractor's method ought to have been followed. The relevant passage is as follows :
'The subject to be valued being a building apart from the site the principle of fixing the value by ascertaining the costs of reproducing the building at the present time and then allowing for depreciation in consideration of the age of the building and for the cost of such repairs as might be required apart from depreciation, is quite a well-known and recognised method of valuing buildings for the purpose of compensation.'
This decision was followed by Sir Madhavan Nair In Secy. of State v. Narain Khanna, 1942-2 Mad LJ 2S9: (AIR 1942 PC 35). The property acquired was situated within Meerut Cantonment. Their Lordships of the Privy Council reiterated the view that the true principle of assessing compensation for the building apart from the site was to ascertain the cost of reproducing the building at the time of the compulsory acquisition and to make an allowance for depreciation in consideration of the age and condition of the buildings and for the cost of necessary repairs. In regard to the acquisition of a site on which the building was erected, the learned Judges of the Travancore High Court applied the principle laid down by Lord Macmillan and reiterated by Sir Madhavan Nair in Abdulrahiman Kunju v. State, AIR 1955 Trav-Co. 110. They held on the particular facts of the case that it was not safe to adopt the rental basis.
Our attention was drawn to Mr. Jahr on Eminent Domain, Valuation and Procedure, 1953 Edn. page 241. The learned Author points out that in the case of a school, a church, a club-house, a library and other buildings of this nature, a builder is called to testify to the cost of reproduction of such structure new; and an allowance is made for the wear and tear or depreciation and the difference is regarded as the sound value of the improvement taken. At page 242 the learned author poses the question 'Is evidence of reproduction or replacement cost admissible in all cases, or is limited to cases where the properties have no market value?'
The answer is that the prevailing rule is that evidence of reproduction cost is admissible in all cases provided the buildings or improvements are fairly adapted to the land upon which they are located.
In Halsbury's Laws of England Third edition, Volume 10, (Simmonds Edition), this principle is dealt with under the heading 'Compensation on Basis other than Existing Use (i) Reinstatement.' At p. 139, the following passage occurs:
'When the land is used for some particular purpose not of a commercial nature, such as for a public park, or for a church or school, it is very difficult to estimate its value for the purpose of assessing compensation for compulsory purchase as there is no general demand or market for land for those purposes. One method adopted is that known as equivalent reinstatement, by which is meant that the amount of compensation to be awarded is to be assessed according to the cost of acquiring an equally convenient site and erecting equally convenient premises.'
Sri A. Gangadhara Rao, the learned Advocate for the claimant, contended that the contractor's method or the reinstatement method ought not to be applied to buildings in respect of which rental basis is available. We agree with his contention and we hold that in regard to the godowns which were let out by the claimant rental basis should be taken as the basis for awarding compensation in respect of those godowns and that the contractor's method should be adopted in regard to the other buildings which were not let out. C.Ws. 3 and 4 have prepared clear and detailed estimates of the costs of reproducing the buildings acquired. There was no serious or effective cross-examination by the Government in regard to the correctness of the figures furnished by them. The figures furnished by the Government for reproducing the buildings in Exhibit B-5 were rightly rejected by the learned District Judge inasmuch as the Supervisor and Engineer who got the estimates prepared were not examined. R.W. 1 had to admit as follows:
'I did not check the measurements taken by my supervisor. I did not inspect each building whether there was mud plastered or morter plastered etc. I did not give any value to the site. Every thing was done by the Supervisor.'
Having carefully perused the evidence of C.Ws. 3 and 4, we are inclined to rely on the plans and estimates prepared by them. No valid reasons were given by the District Judge as to why those estimates ought not to be relied on. The learned District Judge acted arbitrarily in fixing a sum of Rs. 15,000/ for buildings Nos. 1, 2, 4, 8 and 9. C. W. 5 admitted that buildings 1, 8, and 9 were constructed in 1939 and that buildings 2 and 4 were constructed in 1947 and 1954 respectively. An allowance has to be made for depreciation (1) in consideration of the age of the buildings and (2) for the costs of such repairs as might be required apart from depreciation. In Exhibit B.5, the Government allowed 1% by way of depreciation. Similarly, we allow 1% per year. Under head No. (2) we allow one per cent, per year. So in respect of buildings 1, 8 and 9 which were constructed in 1939 and which were acquired in 1956, we allow by way of depreciation and repairs 34% out of the amount estimated to be the value of the buildings in 1956. In regard to buildings Nos. 2 and 4, we allow 18% and 4% respectively as they were built in 1947 and 1954 respectively.
19. The next question that falls to be determined is as to what compensation should be awarded in regard to the nine godowns. The evidence, as stated supra is to the effect that for a year, the nine godowns were let to the Food Department, Central Government for a rent of Rs. 1200/- per month. The contention of the Government Pleader is that inasmuch as the rent was not regularly received for a sufficiently long period, we ought not to adopt the rental basis for determining the value of the godowns. Reliance was placed on a passage in Nichols on Eminent Domain Third Edition, Volume 4 at p. 74. The learned author states as follows:
'Consideration of actual or existing income from property as a basis for the valuation of such property has met with conflicting judicial reactions. Although generally accepted as an element to be considered in the determination of value the use of such a criterion as the sole basis for valuation is predicated upon the concept that the prime and fundamental consideration of property is its status as a producer of rent or income. On the other hand, it has been held that the fact to be ascertained is the value of the land at the time of the taking. It is not permissible to arrive at this fact by proof of the annual net profits derived from a particular use. The profits for any one year would depend upon many and varying circumstances, such as the nature of the season, the price of labour, the condition of the market as to supply and demand in respect to the particular product, and many other factors. A valuation derived from such evidence would be conjectural and speculative, and would not form a proper basis for an estimate of damages.'
Lower down, the learned author states with respect to the actual appraisal process in determining value from income it is the common practice to capitalise the net income. Or, in other words, the value is Such sum as will, in accordance with the prevailing local rate of earning, produce annually a sum equivalent to the net annual income.
20. Reference was also made to some of the decisions of the High Courts that the rental basis is not satisfactory basis. In Governor General in Council v. Hafiz Ghias-ud-din AIR 1949 EP 160 Mahajan. J. (as he then was) stated as follows:
'The net yield of the land at the time of acquisition and an estimate of market-value by capitalising it on the basis of a certain period of time is only one of the modes of assessing market-value, but it is not the only mode of arriving at the decision. It is not always a satisfactory method and considerable element of conjecture always finds place in this method Whether capitalized value is to be given on 16 years or 20 years or 25 years' basis is always a difficult question and this method can only be adopted if no satisfactory evidence if other kinds is available to estimate the market-value. Evidence of sales of the same land or of similarly used land in the neighbourhood furnishes a better criterion of market-value if it is of a satisfactory character and the sales are of a genuine character and have been made at a time when the land had no potential value at all.'
The Mysore High Court has also taken a similar view. Vide Ranganna v. S.L.A. Officer, C.I. Trust Board Mysore, AIR 1959 Mys 123 at p. 127.
21. In Crips' Compulsory Acquisition of Land, Volume, I, 9th edition, at page 4-033, the learned author sums up the legal position as follows:
'Where there are no comparable sales in the neighbourhood the value of freehold interests maybe fixed on the return from the property which the owner might be expected to obtain in the circumstances multiplied by a number of years purchase according to recognised table.
Where there is no possible market value for the land, however, reinstatement value may be the proper value.'
As already stated, the Supreme Court has also held that the rental basis is one of the methods of valuation to be adopted under the Act. The passage at p. 432 in : AIR1959SC429 has already been set out supra.
22. The Madras High Court has uniformly taken the view that when the compulsory acquisition relates to a house and a ground situate in a Municipality, rental basis might be adopted. In Land Acquisition Officer, Calicut v. Subba Rao, 1941-2 Mad LI 75: (AIR 1941 Mad 684) relating to the acquisition of a building and site in the town of Calicut, the learned Judges followed the earlier decision of the Madras High Court in Collector of Kishtna v. Zamindar of Challapalli. 1LR (1938) Mad 431 : (AIR 1938 Mad 33) where the property which had to be valued was the melwaram interest in certain zamindari lands, and applied the rental basis for determining the market value. In Radhakrishna Chettiar v. Province of Madras, 1948-2 Mad LI 159: (AIR 1949 Mad 171) Rajamannar, Officiating Chief justice, reviewed all the earlier decisions of that Court, the learned Judges observed as follows:
'In appeal it is conceded on behalf of theappellant that the proper method of valuation tobe adopted in a case like the present relating tohouse and ground situated in a municipality andfetching regular income is to assess the value onthe basis of capitalisation of the net annual income. The learned Government pleader did notseriously contest that this was the proper method.'
After a consideration of the cases, the learnedJudges stated that both on principle and on account of the similarity of facts, the basis adoptedby King and Patanjali Sastri, JJ. in 1941-2 MadLJ 75: (AIR 1941 Mad 684) ought to be applied.The number of years' purchase was to be arrivedat, according to the learned Judges, by takinginto account the interest yielded by Governmentsecurities at the time of the notification underSection 4(1) of the Act.
The decisions referred to supra were followed by a Division Bench of this Court in China Kotayya v. Sub-Collector of Bezwada, : AIR1955AP286 . We are bound by the decisions of the Madras High Court as also of this Court. We are not inclined to accept the contention of the learned Government Pleader that the rental basis ought not to be adopted and that only the contractor's method should be adopted in regard to the godowns.
23. It was further contended that unless there is evidence that the rent was regularly received for a large number of years, the rental basis ought not to be adopted. His contention was that in the present case there is only evidence of collection of rent for a period of four months. This contention is not wellfounded and is not supported by the authorities. In support of this contention, reference was made to the decision in Ismailji v. Deputy Collector, Nasik, AIR 1933 Bom 37. The learned Judges held that in awarding compensation based on rent actually received, regard must be had to the question whether the lease was one for a considerable period and the rent received was an amount which was likely to be received for a lengthy period. Reference was made therein to the decision in Earl of Eldon v. North Eastern Rly. Co., (1899) 80 LT 722. Bruce, J. laid down the principle at p. 724 in the following terms:
'If that were a rent which could be regarded as a mere accidental figure, and as not likely to be maintained for any long period, he might well disregard it as affording no true index of the value which the plaintiff could obtain for the land if he sold it. But if the rent had been paid over since 1839 and was likely to continue to be paid because the defendants had expended so large a sum of money on the land that they were never likely to determine their tenancy, then it seems to me that the arbitrator was justified in coming to the conclusion that, haying regard to the state of things existing at the time of the notice to treat, there was a reasonable prospect of the plaintiff continuing to receive the same rent, and that the rent was in the circumstances an index of the value of the land to the plaintiff. If the plaintiff had immediately before the notice to treat offered the land for sale, would be not have been able to obtain a price for the land based upon the rent he received in respect of it. If he could establish, as I think he could, that the rent was a rent which the land was likely to continue to command the rent would afford a fair index of the value of the land to him.'
We agree with the statement of the law of Bruce. J. The evidence in the case is to the effect that for about a year nine godowns were let out to the Government of India Food Department, on a rent of Rs 1200/- per month. If the property had not been acquired by the Revenue Divisional Officer on behalf of the Government for the establishment of a factory for the manufacture of stoneware pipes by the Industries Department, we have no doubt that in a big town like Rajahmundry, there would have been demand for the godowns being taken on lease. It is well known that Rajahmundry is situated at the head of Godavari Delta and is a town of great commercial importance. The godowns are very close to the railway station. There is a regular road leading to the godowns. Apart from that, a railway siding has also been sanctioned. But for the fact that the godowns were acquired, the claimant would have been in a position to receive regular rent in respect of those godowns. There was no suggestion in the cross-examination of the claimant's witnesses that the rent was stipulated at an exorbitant figure having regard to any urgent needs of the Government of India, Food Department.
The main contention of the learned Government Pleader for not taking this rental into account was that the lease was for only about a year and that the documents showed that rental was paid only for a period of four months. It is unlikely that the Government having taken the godowns on lease would not have paid the rent at the rate stipulated for the whole period of one year. The explanation given by Sri Gangadhara Rao, the learned Advocate for the claimant, for the property not being leased out from February 1956 is that correspondence was being carried on by the Industries Department for the acquisition of this property. The letter that was addressed by the Tahsildar to the Collector and marked as Exhibit A-120 as regards the total cost of the building is dated 30-1-1956. The evidence also shows that after the purchase of the land and the buildings, buildings 3, 5, 6 and 7 were conveniently converted into godowns. Though there is no evidence as to the extent of the compound that was let out for the convenient use of these godowns we are inclined to think on a perusal of the plan Exhibit A-11 that two-thirds of the site to the west of the godowns must have been comprised in the lease to the Food Department. We think that space occupied by buildings Nos. 1, 2, 4, 8 and 9 as also the vacant site to the east of the godowns might he fixed as one-third of the total extent.
24. Though for one year the Government of India was paying rent at the rate of Rs. 1200/-per month for the nine godowns we are inclined to fix the average rent that the godowns might have fetched regularly, if let out to a private party at Rs. 100/- per godown. Calculating on that basis, the annual rent amounts to Rs. 10,800/-. We have to allow out of this annual rent the amount to be paid by way of taxes to the Municipality as also the amount to be expended for repairs. Sri Gangadhara Rao, the learned Advocate for the claimant, told us that at the relevant period, the municipal authorities were levying a house tax based on the rental for a period of two months and seven days. We therefore deduct for house tax and repairs rental for two months and seven days plus one month, or roughly 3 1/4 months. The net rental which has to be capitalised for arriving at the market value works out at Rs. 7875/-.
25. So far as the capitalisation is concerned, the view taken by the decision of the Madras High Court followed by this Court in : AIR1955AP286 is on the basis of the interest yielded by Government securities at the time of the notification under Section 4(1) of the Act. The Andhra Gazette, Part I Extraordinary dated 10-8-1956 produced before us shows that 4% loan was floated at Rs. 99-8-0 per Rs. 100/-. The capitalisation must be slightly more than 24 times the net rental. In the grounds of appeal, the claimant has restricted her claim to 20 years' purchase, vide ground No. 9. Though according to the decisions of the Madras High Court as followed by this Court, the claimant might be entitled to 24 and odd times of the annual rental, we award compensation for the godowns according to her claim as restricted i.e., 20 x Rs. 7875 i.e., Rs. 1,57,500/-
26. It appears from the decision in ILR (1938) Mad 431 : (AIR 1933 Mad 331 that the learned Judges held that the return from the landed property generally speaking reflects the prevalent rate of interest on money investments. The decisions of the Madras High Court have now laid it down as a uniform rule that the number of years' purchase should be arrived at by taking into account the interest yielded by the Government securities at the time of the notification under Section 4(1) of the Act. Our experience shows that in regard to urban properties, buildings and godowns, there is a return of a higher income than the income derived from the gilt-edged securities. The number of years' purchase, according to the decisions of the other High Courts, should depend upon the facts and circumstances of each case.
27. The land acquired in the present case is of an extent of 4 acres and 93 cents. As already stated, the site not let out to the Food Department is one-third of 4 acres and 93 cents. The value of that site viz. one-third of 4.93 acres should be valued at the rate of Rs. 2000/- per acre as fixed by the Land Acquisition Officer. The value of the buildings 1, 2, 4, 8 and 9 less depreciation allowable as laid down by Lord Macmillan works out at Rs 50,432/-. The total compensation that is payable, according to our judgment, comes to Rs. 2,11,219/-.
28. Sri N.V.B. Sankara Rao, the learned Government Pleader contended that in regard to the value of the godowns we should strike the average between the market value according to the contractor's method and the market value according to the rental basis for arriving at the correct market value under Section 23 of the Act. In support of this contention, he relied upon the decision of the Calcutta High Court in Harish Chunder Neogy v. Secy. of State for India in Council, 11 Cal WN 875. The relevant passages are at p. 876 and they are as follows :
'The cases of valuation of land acquired under Act I of 1894 for public purposes or the purposes of companies may be classified under three heads:
(1) The opinion of valuators or experts;
(2) the price paid within a reasonable time in bona fide transactions of purchase of the lands acquired or of the lands adjacent to the lands acquired and possessing similar advantages; and (3) a number of years' purchase of the actual or immediately prospective profits from the lands acquired.
It is generally necessary to take two or all of these methods of valuation in order to arrive at a fairly correct valuation. Exact valuation is practically impossible, the approximate market value is all that can be aimed at.'
We are not inclined to agree with the contention that the learned Judges held that the average of all the modes of valuation mentioned by them should be struck in order to arrive at the true market value. So far as the 'buildings, which are not let out, are concerned, we adopt the contractor's method. So far as the godowns are concerned we adopt the rental basis. We also add the value of the site according to the sale deeds available for the purpose of fixing the market value of the land.
29. A contention was raised that the burden of proving the market value lay upon the claimant and that on the particular facts of the case, the burden has not been duly discharged. We agree that ordinarily the burden of proof lies upon the claimant to prove the market value of the property. As pointed out in 11 Cal WN 875, the burden varies according to the nature of the inquiry made by the Collector. If no evidence had been taken by the Collector and if no reasons have been given in his decision to support his conclusion, the claimant has a very light burden to discharge. In this particular case, the Collector referred to a sale deed executed by the claimant in regard to a portion of the property. The document ought to have been marked as an exhibit in the case in order to definitely ascertain what extent was sold under that document and for what rate. Though we had considerable doubt as to whether the extent sold was 63 cents or 1 acre and 64 cents, we gave the benefit of doubt in favour of the Government.
Comment was made that the District Judge erred in relying on his own observations as to the nature of property without recording the inspection notes at the time of the inspection. From, ground No. 16 in Appeal No. 201 of 1959 filed by the Revenue Divisional officer, it appears that the learned District Judge made notes of his inspection. The learned District Judge is perfectly competent under the provisions of Order XVIII, Rule 8, C.P.C. to inspect the property and rely upon his observations.
30. The last question that remains to be considered is as to the rate of interest that should be awarded on the compensation. Under Section 28 of the Land Acquisition Act, the rate of interest provided is 6% per annum on the enhanced compensation from the date on which the Collector took possession of the land up to the date of payment of such excess amount into Court. Though this section was amended by the Madras Amendment Act XII of 1953 and the rate of interest was reduced to 4%, it is regrettable that the Courts below in a number of land acquisition appeals which came up before us have not taken note of the amendment, and are awarding interest at 6%. The District Judge has also in this case committed the same error and has awarded 6%. We set right the mistake and award 4% on the enhanced compensation from the date of the Collector taking possession i.e., 8-2-1957 up to the date of payment into Court. The claimant will also be entitled to be paid solatium at 15% on the market value of the property acquired under Section 23 of the Act.
31. In the result, Appeal No. 133 of 1959 is allowed in part with proportionate costs. Appeal Nos. 201 of 1959 fails and is dismissed with costs.
32. Before concluding the judgment, we wish to express our indebtedness to the exhaustive and enthusiastic arguments of the learned Government Pleader Sri N.V.B. Sankara Rao and the clear and lucid arguments of Sri A. Gangadhara Rao.